Gold retreats from near record despite Middle East tensions

Gold surged close to a new record high, then retreated, as concerns over a wider regional conflict in the Middle East roiled global markets.

Spot bullion initially rose as much as 1.6% after US officials said Israel had struck targets in Iran, while base metals also jumped before paring gains.

Bullion has smashed records in a powerful rally since mid-February, driven by the prospect of US interest rate cuts, continued purchasing by central banks and strong consumer demand, especially in China. Simmering international tensions have also boosted the precious metal, which broke through $2,400 an ounce in the morning’s move.

“Technically speaking, we are also clear above a key short-term resistance level” of $2,400 an ounce for gold, Kelvin Wong, senior analyst at Oanda Asia Pacific Pte., said. “That also explains a fresh round of short term speculators rushing to the market at this juncture.”

Traders have been girding for an Israeli response to Iran’s unprecedented missile and drone attack last weekend, with the rhetoric between the two escalating as Tehran warned against striking its nuclear facilities.

An explosion was heard Friday in Iran’s central city of Isfahan, the country’s semi-official Fars news agency reported, as concerns mounted about Israeli retaliation.

Flights were suspended in Isfahan and the Iranian cities of Tehran and Shiraz as well as airports across the country’s western borders, Iran’s Mehr news agency also reported. 

Separately, US data Thursday had fanned concerns that the Federal Reserve has some way to go before cutting rates — a view shared by a number of policymakers. Higher borrowing costs are typically negative for the precious metal, which doesn’t pay interest.

Spot gold was up 0.2% at $2,382.45 an ounce at 12:55 p.m. in Singapore, while copper was 0.1% lower. The Bloomberg Dollar Spot Index rose 0.2%. Silver, palladium and platinum were little changed.